Governments should ensure they have the power to impose capital controls on crypto alongside traditional assets, the International Monetary Fund said, as the war in Ukraine continues to raise concerns over sanctions evasion.
That means that citizens of crisis-hit countries like Greece and Argentina could potentially see their access to bitcoin limited alongside restrictions on withdrawing cash from ATMs or accessing foreign currency.
“Laws and regulations for foreign exchange and capital flow management measures should be reviewed and amended if necessary to cover crypto assets," even if currencies like bitcoin don't formally count as financial assets or foreign currency, the IMF said in a financial stability report published Tuesday.
“The war in Ukraine has brought to the forefront some of the challenges that regulators face in terms of applying sanctions and capital flow management measures,” it added, citing the risk that crypto-based evasion will become “more widespread.”
Though the IMF concedes that making big ruble transfers on crypto exchanges is “impractical," it warns some of those seeking to evade sanctions may turn to less scrupulous providers or use other privacy techniques like mixers.
Crypto mining also offers the chance for emerging market countries to effectively exchange energy for bitcoin, the IMF said, adding to concerns that states' ability to halt outflows during financial turbulence could be undermined.
In remarks to reporters after the publication of the report, IMF officials admitted virtual assets probably aren't being used to circumvent the financial restrictions on Russia.
“The evidence to date suggests there is not much going on in terms of undermining sanctions via crypto assets,” said Tobias Adrian, director of the IMF’s Monetary and Capital Markets department, citing data on prices and volumes of Tether stablecoin transactions. “Of course it’s something that we’re watching very very closely."
The report follows an IMF warning in October that underregulated crypto could cause instability and fraud. Central bankers such as European Central Bank President Christine Lagarde have previously said that crypto is being used to evade financial sanctions imposed on Russia, despite little evidence.
UPDATE (April 19, 2022, 15:23 UTC): Adds comments from IMF's Tobias Adrian in penultimate paragraph.
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